LESSONS LEARNED FROM THE ANGEL INVESTOR MASTERCLASS CAPE TOWN

The African Business Angel Network (ABAN) and Silicon Cape hosted the third in the series of Angel Investor Bootcamps on August 27th, at the FNB Portside building in Cape Town. These events are organised inpartnership with VC4Africa, Intercontinental Trust and the LIONS Africa Partnership.

Alexandra Fraser, past-Chairperson of Silicon Cape, director and partner at Batstone tech strategists and angel investor, welcomed an audience of angels, entrepreneurs and potential investors who were there to learn more, share experiences and to network with each other.

“Angel investing is never just about the money,” said Fraser. It’s about bringing mentorship, experience, expertise and an established network of contacts to the relationship.”

Fraser introduced FNB Cape Provincial Head, Stephan Claassen who emphasised the need for entrepreneurial growth in South Africa. “South Africa needs entrepreneurship and FNB is committed to supporting entrepreneurial development,” said Claassen. “We wanted to be part of creating this platform with Silicon Cape. We like innovative business. It’s an opportunity for us to attract new business and to invest in innovation. We have clients who are looking to invest so it’s relevant to our current clients’ needs,” he said.

ABAN’s objective is to promote a culture of early stage investing across Africa. “The concept behind our Masterclasses like this, is that we’re able to have conversations with, and learn from the local community,” said David van Dijk, ABAN’s co-founder and director. “We’ll take the lessons learned to an annual summit taking place on September 23rd 2015 in Lagos, Nigeria,” he said.

Van Dijk introduced keynote speaker, Selma Prodanovic, also known as the Business Angelina or Startup-Grand-Dame. Prodanovic is a co-founder of the Austrian Angel Investors Association, board member of the European Business Angels Network (EBAN), and founder of Brainswork. She is known to be one of the most influential start-up and new business developers in Europe. An entrepreneur, speaker, advisor, and angel investor, she has received numerous awards, most recently the Veuve Clicquot Business Woman Award.

Prodanovic described herself as an “absolutely passionate entrepreneur”.
“I believe entrepreneurs and start-ups are the ones who creating solutions to problems. And we need to help and support them,” she said.

Having attended a panel discussion at the SA Innovation Summit earlier in the day, Prodanovic realised that many of the challenges that local South African entrepreneurs are facing are in fact, global issues, such as the need for education and infrastructure. “But then, what are entrepreneurs? Entrepreneurs create what they want to create, against all odds and no matter what,” she said. “At the end of the day, if it was easy, then everybody would do it.”

She explained that when she started bringing people together to discuss angel investment in Austria, it was a strategic decision to ensure that seventy percent of the participants did not know each other and came from different investment circles. This encouraged participants to attend the following meeting after that, because it allowed them to meet new people, whereas previously the investment circles in Austria and Europe were traditionally cliquey and exclusive.

The second priority in developing the angel network was to bring in important players from traditional businesses who had nothing to do with the start-up world. They were invited to join the angels on an advisory board. “With that, we got the interest of the big money,” said Prodanovic.

“The majority of business angels worldwide are in the fifty plus age group, management and CEOs of big companies who are influential, have an entrepreneurial spirit and want to be part of an entrepreneurial venture, but no longer want to do it on their own. So they’re investing in the next generation,” she said.

“A business angel means more than just cash in/cash out investing. They’re bringing much more to a start-up,” said Prodanovic. She explained that business angels bring three types of capital to a venture. Financial capital (cash); social capital (a network of high-level contacts) and human capital (knowledge and experience).

“Being a business angel is a fantastic thing to do. You’re able to enable entrepreneurs to follow and build their dreams”, said Prodanovic. “But it’s important to think about why you are a business angel. If for example you are in New York, you will say you’re in the exit business. It’s all about making money at the end of the day. But I totally disagree. The exit is a result, but not the main purpose. I think that business angels are in the business of creating great businesses,” she said.

Prodanovic urged the audience to think of themselves as potential business angels. “It’s not about investing huge amounts of money,” she said.

“There are many women for example, who are already supporting entrepreneurs; giving them knowledge, sharing their networks and maybe investing some money. But they think of themselves as mentors and just helping out — there is no professional relationship.”

Prodanovic strongly believes that it’s important to formalise that into a professional relationship. She explained that a professional relationship states that the business angel has the right to expect some return on their investment, and that the founder is worth the investment of time and money. “It’s not about being nice,” she said. “It’s a business relationship.”

Prodanovic explained that there are various ways to be a business angel and that potential angels need to focus on why they want to get involved.

“Is it just to exit or to create and grow a business? Will it be a professional full-time job or just a hobby?” she said.

She advised that in general, it is better to have a portfolio of start-ups to cover your losses as the general rule is that less than a third of the start-ups will become sustainable.

“The difference between angel investing and investing in companies on the stock exchange is that with angel investing you’re part of the advisory board and/or a partner in the company, so you know what’s going on in the business,” said Prodanovic.

Prodanovic would like to see more corporate CEOs becoming angel investors.
“They have the expertise, the networks and relationships with international corporates, so they can facilitate international relations and open doors for start-ups, which makes it much easier for the start-ups to grow,” she said.

“We need a diversity of business angels to be enable a diversity of start-ups,” said Prodanovic. “Globally, women are under-represented in the start-up space. And we’ve got to change that. The Rising Tide is a global fund and training program created by 99 women angel investors with the objective of increasing women’s participation in angel investing and educating a new wave of angel investors. It’s not about investing as a female. It’s about having female investors, which in turn encourages more female founders to enter the start-up space.”

Prodanovic advises potential business angels to invest in a field that they know and like, that they’re passionate about and comfortable in, in order for them to bring the requisite knowledge and network to the start-up. The advantage of investing in funds and syndicates on the other hand, allows angels to invest in different sectors, because others in the network hold the expertise. “That’s the advantage to being in a network”, she said.

“One of the most important rules of being a business angel, is the readiness to learn from others,” said Prodanovic. “It’s important to create the capacity, the capability and the opportunity for more experienced angels to mentor those less experienced.”

Following the keynote, a panel discussion on angel investment took place. Facilitated by Alexandra Fraser, it featured panellists Selma Prodanovic and investors Daniel Guasco of Team Africa Ventures; Justin Stanford of 4Di Capital; Ernst Hertzog of Action Hero Ventures and Willem du Preez of Intercontinental Trust (one of the sponsors of the event).

Prodanovic emphasised the importance of investing in a great founding team.
“Early stage investment is about investing in people and how they think. It’s crucial to invest in great people who can wake up each morning, despite the odds, and do what they need to do. They need to be working on solving a problem that they are committed to. It’s not about falling in love with an idea. You’ve got to invest in a team that can deliver on the idea, ” she said.

The panel agreed that it’s crucial that both angels and founders are aligned with similar values, expectations and a common end goal. That alignment needs to be outlined in the terms, because if there is not alignment, it can lead to expectations not being met, and that can cause a venture to derail.

The panellists addressed the importance of encouraging corporate executives to become angel investors. “In my experience, there is a lot of capital available,” said Hertzog. “But the problem is to get executives to donate their time. And that’s what you’re after. There’s no point making this type of investment if you’re not involved. They need to find the time to add value to their investment portfolio,” he said.

Stanford advises entrepreneurs to prioritise what they need from angels according to their strengths and to ask for targeted advice addressing specific queries, rather than to expect what he called an “all-encompassing flow of feedback” from the angels.

He believes that one of the biggest errors you can make as an investor is to make decisions for the management team. “You can make suggestions,” he said. “But management must always own the outcomes. Make sure you’re giving advice and not instruction.”

The panel agreed that investment syndicates allow investors to mitigate risk through a broader spread of investments, as well as bringing additional disciplines, skills and networks to the ventures.

Angel investing is not about overnight success and is high-risk. It can take up to ten years to build a sustainable and successful venture and it usually requires a lot more investment than initially planned for. “Investors need to be aware that the first cheque is never the last cheque. When you make an investment, you buy the obligation to put more money in,” said Stanford. “Usually it makes half the revenue and takes double the cost and double the time,” he said.

Prodanovic spoke of the high rise of impact investing worldwide and that financial sustainability of those ventures is equally as important. Van Dijk addded that European investors often equate African ventures with impact investing which is not necessarily the case. Stanford believes however, that good investments are by nature, impactful. “Great businesses create employment and good experiences,” he said.

Prodanovic is committed to increasing the visibility of angel investing and start-ups and initiated the one million startups campaign to extend this awareness. “We’re still in the minority and we need to create awareness in the ‘outside world’. The majority of people do not realise the importance of start-ups in terms of the solutions they offer. Big corporates are no longer able to create jobs and are mostly not creating innovation, whereas entrepreneurs and start-ups are able to create and deliver innovation in a much faster turnaround time. The world needs to recognise that start-ups are an important part of the solution to our problems.” she said. “Anyone can become an angel investor. It’s the best way to make a better tomorrow.”